Two Essays on Stock Repurchases-The Post Repurchase Announcement Drift: An Anomaly in Disguise? and Intra Industry Effects of IPOs on Stock Repurchase Decisions

We reexamine the stock price drifts following open-market stock repurchase announcements by differentiating actual repurchases from repurchase announcements and by controlling for the repurchasing firms\u27 earnings improvement in the announcement year relative to the prior year. Our results show that only firms that actually repurchase their shares exhibit a positive post-announcement drift. More importantly, we find that these repurchasing firms have the same post-announcement drift as their matching firms that have similar size and earnings performance but do not repurchase. Further analysis indicates that the post-repurchase announcement drift is not a distinct anomaly but the well-documented post-earnings announcement drift in disguise. In addition, previous studies suggest that the market perceives IPOs as bad news (i.e., competitive threats) to existing firms in the same industry. At the same time, the market has a tendency to be overly optimistic about IPO prospects, especially during hot IPO markets. Thus, the negative industry rival reaction could be the result of investors\u27 over-optimism toward the IPOs\u27 growth prospects and underestimation of the competitive positions of industry rivals. Our findings show that rival firms use repurchases as a means to signal their firm quality, as well as to correct the market\u27s overreaction to the bad news. These IPO-induced repurchases are stronger when the rival firms are in a concentrated industry and experienced poor stock performance in the previous year